Two Purchasing Approaches to the Definition of Sourcing

The current context marked by the increase in the price of resources and raw materials and the strong competition on the market is forcing companies to rethink their procurement strategy. An essential step in the purchasing process, the supplier sourcing plays an essential role in the performance of a business. Purchasing teams that pay more attention to this process and are well-versed in it can reap numerous benefits. So what exactly is the supplier sourcing process ? In this article, we are going to define what is sourcing suppliers based on two different procurement approaches: strategic sourcing and global sourcing.

What is the definition of “Sourcing”? — We offer you two Purchasing approaches

Before going any further, let's first start by defining what is supplier sourcing.

The processor sourcing is the process that makes it possible to find new suppliers able to meet a business need. It includes research, evaluation, and selection of partners who can meet this need. The supplier sourcing process can be done manually by performing searches on various channels. But there are also digital purchasing solutions, also called Source-to-Pay such as Sourcing Force, which speed up and simplify this process.

The most common definition of Supplier sourcing is as follows: “it's the process of identifying potential suppliers, leading to negotiations, and then moving on to procurement contracts with these suppliers.”

However, there are several definitions of Sourcing suppliers which are divided into two main categories: Strategic Sourcing and Global Sourcing.

First Definition: Strategic Sourcing

What is strategic supplier sourcing?

The first definition of Supplier sourcing Strategic (i.e. strategic buying) is a concept that was introduced by major consulting firms in the late 1980s. It is now considered to be a standard buying strategy used by many blue-chip companies.

However, the most common definition of purchasing is Strategic Sourcing. This corresponds to the process of taking advantage of purchasing opportunities by continuously reviewing needs in relation to market opportunities.

The term Strategic Sourcing was created by General Motors in the 1980s and is now a Common Purchasing business tool. The rise of China and its production capacities have opened up numerous opportunities for strategic sourcing.

The Supplier sourcing strategic is often used for high value services, ad hoc purchases, and advertising purchases. There are several processes of Supplier sourcing Strategic, namely:

• Assessment of the company's current purchasing cycles.
• Assessment of what is currently available on the market.
• Review of the cost-benefit analysis of using alternative suppliers.
• Examining potential suppliers.
• Update of the current sourcing strategy.
• Negotiations with potential suppliers to ensure that they comply with the new procurement strategy and cost-benefit analysis
• Implementation of the new supplier relationship.
• On an ongoing process, review and update Strategic Sourcing.

As the name suggests, the supplier sourcing strategic is a process that makes it possible to align purchasing decisions with the company's overall goals. It is a global approach that makes it possible to gain efficiency in optimizing costs and reducing supplier risks through better supplier selection. It focuses on continuous improvement and the ongoing reassessment of procurement activities. It is therefore a systematic and long-term approach that allows the Purchasing team to analyze who it buys from, at what price and at what volume. The aim is to reduce costs and improve performance in a sustainable way.

The supplier sourcing strategic differs from traditional purchasing practices in that it focuses on the life cycle of the product, not on its original purchase price.

Strategic supplier sourcing and digitization of procurement

As the main objective of strategic sourcing is to improve the efficiency of the purchasing process, this approach is now inseparable from the digitalization of procurement. The best practices of supplier sourcing strategic include automating workflows, digitizing documents, and signing up for a digital business network.

One supplier sourcing process strategic is organized around three actions:

• The concentration of supplier information and expenses in a single database: this makes it possible to rationalize the search and selection of suppliers
• The use of a digital commercial network to search for new suppliers: this makes it possible to launch tenders and compare offers or proposals from suppliers in one place
• Tool automation: this makes it possible to speed up workflows, create an electronic contract repository and simplify the digital signature process.

When supplier sourcing is automated and digitized, businesses can react more quickly and constantly assess suppliers to obtain better purchasing conditions. The digitization of supplier sourcing process also makes it possible to minimize supplier risks, to save money, to streamline the purchasing process and to improve the visibility of information between all stakeholders.

The establishment of strategic sourcing allows a company to create long-term partnerships with suppliers, to integrate them into the product development process and to optimize the supply chain.

The different stages of strategic sourcing

Strategic supplier sourcing consists of four steps:

• Data collection and spend analysis: This step consists of concentrating all supplier data into a single source. Thanks to this, the company can know exactly what its purchasing expenses are with a particular supplier.
• The search for suppliers: sourcing becomes strategic when the company can access supplier data via a digital network. This means that it can launch tenders there and receive the offers in return in the same place. All suppliers will therefore be put in competition.
• Contract negotiation: the use of digital tools, such as Sourcing Force, makes it possible to speed up the workflow and facilitate negotiation processes.
• Implementation and optimization: this last step consists in deploying the e-sourcing solution. It offers the advantage of speeding up the procurement process, creating feedback loops to continuously improve the process and results, and evaluating suppliers on an ongoing basis.

The benefits of strategic supplier sourcing

The supplier sourcing strategic offers numerous advantages:

Simplifying the buying process

The sourcing suppliers traditional, which is done manually using spreadsheets, increases the chances of human error and reduces visibility.

Digitizing sourcing reduces these risks and streamlines the purchasing process. It allows all stakeholders to have better visibility to ensure that the selected suppliers meet the requirements in terms of cost, time and quality.

A smoother supplier sourcing experience

The automation and digitization of supplier sourcing make it possible to improve the sourcing experience, i.e. the research, evaluation and selection of suppliers. The deployment of strategic sourcing effectively makes it possible to classify each purchase, to standardize the purchasing process, to allow employees to focus on more strategic tasks, to identify new savings opportunities, to reduce costs, to increase the profitability of purchasing teams, to increase the profitability of purchasing teams, to accelerate the process, to accelerate the process, to select the best suppliers and to simplify the purchasing process.

Cost reduction

The supplier sourcing strategic takes into account the total cost of acquisition (CTA). The company can therefore focus on finding long-term savings and creating profitable partnerships.

Optimizing efficiency

Businesses that use the supplier sourcing strategic gain in efficiency. Indeed, as suppliers are pre-qualified, supplier selection and procurement times are reduced for future procurement projects.

More informed decision making

Strategic sourcing involves continuous analysis of spend data and in-depth market research. This allows the company to make more informed purchasing decisions and identify potential risk factors.

Ethical supplier choice

The sourcing suppliers strategic allows procurement teams to choose suppliers who share the same values, goals and ethics as they do in terms of corporate social responsibility.

Second Definition: What is Global Sourcing?

The second definition of supplier sourcing is Global Sourcing (i.e. globalized purchasing). This term refers to the purchase of products and services regardless of national borders. It is particularly popular in the countries of the European Union and in Asia. These two areas are less concerned with geographic boundaries.

The rise in Chinese and Indian production capacities has led to a considerable increase in purchasing in these countries in recent years. Businesses that buy are looking for low-cost labor. Many countries also offer tax benefits and offer attractive rates to encourage investment.

What is global supplier sourcing?

Global sourcing, also called globalized sourcing or international sourcing, is a global purchasing strategy. It therefore consists for a company to look for suppliers outside its national borders.

This approach can respond to several reasons:

• Search for better price and logistics conditions
• Supply of factories located abroad
• Obtaining products or raw materials that are not available on national territory

The objective of the global supplier sourcing is to take advantage of greater savings and to obtain better purchasing conditions. However, this cannot be done if an optimal combination is not obtained between the price of the goods, the cost and the delivery time, the logistical structure, customs barriers and the quality of the product. Indeed, having the best pricing conditions is not enough to justify the effectiveness of global sourcing. Logistics must also play a key role. The goods must be transported to the production sites in the best conditions.

Nor should we overlook the geopolitical risk that international sourcing represents. Businesses have little control over supplier activities and information transfer.

Finally, it is also necessary to assess the factors of cost and non-cost in globalized sourcing. Cost factors include production costs, quality control costs, raw material delivery costs, import costs and logistics costs, among others.

Then there are non-cost factors, such as the know-how of the company and the country, its ability to meet the quality standards in force in the territory of origin, political and ethical risks, logistics infrastructures and the availability of raw materials.

Supplier sourcing and personnel sourcing

Another definition of strategic sourcing also exists: that of personnel sourcing. It is the proactive search for highly qualified profiles for companies, to obtain a competitive advantage. Staff sourcing is a complex procedure that is used when a large number of part-time or short-term employees are required.

We speak of proactive personnel search, because it does not depend on the number of positions to be filled at a given time, but on the needs defined in the company's strategic plan. It is now a major trend in the field of recruitment. The strategic sourcing approach is a real plus for recruitment teams.